Stocks posted their biggest jump in nearly two weeks on Tuesday. Investors picked up cheaply priced stocks after fears that the U.S. would slip into a recession pounded the market over the last month.
The Dow jumped 322 points, its best day since Aug. 11, when it gained 423. The Dow dipped about 60 points shortly after an earthquake hit the East Coast at 1:51 p.m., but recovered within 20 minutes and soared even higher in the afternoon.
James Paulsen, chief investment strategist at Wells Capital Management, said the beating stocks have taken since late July made it look like investors were preparing for a recession. Investors questioned that bleak outlook Tuesday after a manufacturing survey from the Richmond, Va. Branch of the Federal Reserve pointed to a slowdown, not a recession. "And when people are preparing for a recession, slow growth is good right now."
The Dow, which tracks 30 huge U.S. companies including IBM Corp. and General Electric Co., closed with a gain of 3 percent at 11,176.76. Indexes that track smaller stocks did even better, a sign that investors were more willing to take on risk.
The S&P 500 index rose 38.53 points, or 3.4 percent, to 1,162.35. The Nasdaq composite, which tracks mainly technology companies, rose 100.68 points, or 4.3 percent, to 2,446.06. The Russell 2000 index of smaller U.S. companies gained even more, 4.9 percent.
As of Monday the Standard & Poor's 500 index had lost 16 percent over four weeks as investors worried that the U.S. might enter another recession and as Europe's debt crisis flared up again. That meant the average company in the index was priced at just 11 times the expected 2011 earnings. "That's too low if you're not in a recession," Paulsen said.
Exxon Mobil Corp. rose the most of the 30 stocks in the Dow, 4.9 percent. Chevron Corp. was also up more than 4 percent. Energy stocks got a push from a slight increase in the price of oil, to $85.44 a barrel. The dollar fell against the euro and Japanese yen as investors moved money into riskier assets.
Bank of America Corp. lost the most of any Dow stock, 1.9 percent. The stock fell 35 percent this month as investors become increasingly worried about the bank's ability to raise capital and its liabilities related to subprime mortgages. The latest disappointment came Monday with news that BofA will not sell all of its 10 percent stake in China Construction Bank.
Indexes eked out minor gains Monday following a four-week losing streak. During that time there were four days in a row in which the Dow Jones industrial average moved by at least 400 points, the first time that has happened in the Dow's 115-year history.
One measure of the market's swings, the Chicago Board of Options Exchange's volatility index, is up 44 percent this month. That's a sign investors are anticipating more wide swings in the S&P 500, the stock index most money managers use a benchmark. The index fell 15 percent Tuesday as concerns about future turbulence eased.
UBS rose 5 percent. The Swiss bank said it planned on cutting 3,500 jobs worldwide in the hope of saving $2.5 billion by the end of next year. UBS's stock has dropped 20 percent this year.
There's still fear that the U.S. could slip into another recession. Investors will be watching Fed Chairman Ben Bernanke's speech at the Fed's annual retreat in Jackson Hole, Wyo., on Friday. It was at the same conference a year ago that Bernanke made the case for buying Treasury bonds to push interest rates lower and spur spending. That $600 billion bond-buying program was credited with giving stock markets a lift but it ended in June.
The yield on the 10-year Treasury note rose to 2.15 percent from 2.10 percent late Monday. The yield fell below 2 percent last week, its lowest on record, as investors sought refuge from turmoil in the stock market.
Five stocks rose for every one that fell on the New York Stock Exchange. Trading volume was higher than average at 5.2 billion shares.